We saw some panic this week and the VIX spiked sharply higher on Monday, jumping 40% or so. It popped above its upper Bollinger Bands (BB). And, it closed at its highest level since May. As shown below, from time to time, VIX will do so and this is the 7th time for this year actually. If you know how to analyze the VIX trend, actually this is one of those reliable signals regarding buying opportunity.
You see, whenever the VIX closes above its upper BB, it indicates an extremely volatile condition or a panicky situation and we usually see a steep decline in the stock market. This may be more easily understood by looking at how S&P performed each time when VIX shot up above its BB.
So how does this signal play out? Well, it usually happens when the VIX closes back inside its BB, which often signals a buying opportunity, big or small. See the past 6 times this year that each such a signal was followed by a rebound of the market.
Now the big question is whether we will see a similar pattern materialized this time? No guarantee of course but I bet so. I think the market is turning more bullish than bearish now at least for the very near term. The million dollar question is whether or not S&P will challenge and make new highs immediately during this rebound or another dead cat bounce to retest its recent lows? I bet for the latter but this is another concern we need to worry about when we come to that point in a few days or a week or so. For now, I'm betting for a decent rebound. 🤗
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